As cryptocurrencies become more widely accepted by mainstream financial institutions, former Goldman Sachs Investment banker Matt Levine predicts that the future of tradings will be on Wall Street alongside the stock exchange.
With a growing number of investors entering the cryptocurrency market with large sums of capital, banks are beginning to see the economic benefit of facilitating their investments. One of the largest banks in the UK, Barclays Plc has just taken the cue from Goldman Sachs, now offering a Bitcoin trading desk.
The trading desks are designed to help clients make the most beneficial exchanges, while only dealing with cryptocurrencies that comply with all necessary regulations. The banks offer a range of services for their clients, including lending, brokering deals, market-making, custody of finances and market research.
As Levine frames it, the more these services in the cryptocurrency market become critical to clientele, the more banks are expected to provide these services. Hedge funds managing cryptocurrency assets have become increasingly common, requiring banks to handle trades, prime brokers, and serve as custodians.
The biggest issue for banks right now is a lack of clear regulation, as they are strictly prohibited from providing any unregulated services.
Levine has said that banks may be inclined to domesticate cryptocurrency should the demand from clients be high enough. He noted that this trajectory may well be viewed unfavorably by who he describes as ”cryptocurrency true believers”, recognizing that many have adopted cryptocurrencies as a rejection of the traditional financial system.
“[They] may be disappointed if cryptocurrency trading ends up being dominated by the likes of Barclays and Goldman Sachs,” said Levine.
Bitcoin futures contracts have promoted easier entry into the market for fund managers, allowing investors to hedge Bitcoin exposure, or harness its performance with a futures product. Platforms such as CME offer what they describe as a ”cost-effective way to trade financial and commodity markets”.
Whether digital currencies will be fully adopted by big banks is still up for debate, as is how the cryptocurrency community will accept this. The market cap for digital currencies currently stands at around USD 330 billion, a number that Wall Street is surely watching.